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With colorful billboards at train stations, TV commercials showing Brazilian soccer legend Zico or a carefree, successful young woman, major consumer loan firms seem to have shed the shady images that previously haunted them.

Indeed, these firms, which extend unsecured, high-interest-rate loans, have enjoyed brisk business in recent years amid the nation’s prolonged economic slump.

As the industry has thrived, however, more people have filed for personal bankruptcy amid heavy debt burdens.

According to Kenji Utsunomiya, a Tokyo-based lawyer and an expert on the issue, the majority of personal bankruptcy cases stem from debts to consumer loan firms.

The Supreme Court said a record 139,281 people filed for personal bankruptcy in 2000, more than 10 times the figure from a decade ago but still small compared with the United States and other industrialized countries.

But experts estimate the number of people facing bankruptcy through multiple debts from several lenders may exceed 1.5 million.

Contrary to the stereotype that heavy debtors are gambling addicts, spendthrifts or simply lazy, an increasing number are forced to borrow high-interest-rate loans just to cover daily expenses.

According to a study last year on personal bankruptcies by the Japan Federation of Bar Associations, 40 percent were mainly caused by low income, disease, loss of work or other factors, while gambling, leisure or extravagance accounted for 4.1 percent.

The latest survey by the National Consumer Affairs Center of Japan also supports this finding. It shows that consumers’ main reason for borrowing has shifted over the past five years from “purchasing luxury goods” to “covering daily expenses.”

A Tokyo woman in her 70s, who recently sought help from a citizens’ group supporting heavy debtors, said she worked as a chambermaid at love hotels since fleeing her abusive husband about 30 years ago.

But the hotel chain’s business went downhill and her employer began delaying wage payments around 1998, she said, which forced her to borrow 200,000 yen from a consumer loan company for the first time to cover living expenses.

“I thought I would be able to pay it back,” she said. But similar to many other borrowers from such firms, her debts snowballed at interest of nearly 30 percent per annum combined with a daily calculated surcharge on arrears.

The hotel chain went bankrupt in May 1999. The woman lost her job and the expected dividends from the company’s shares she owned. At that point, she had debts of around 1.3 million yen from five loan companies.

She is now filing for bankruptcy with the assistance of a Tokyo-based group for troubled debtors.

Many of the group’s staffers either are or were in heavy debt from high-interest loans themselves.

A 70-year-old man who ran a small carpentry shop in Tokyo’s Ota Ward has a similar story.

His personal debts started to soar after a car importer that subcontracted to his company collapsed in 1992.

He said he had no choice but to borrow high-interest consumer loans because banks were reluctant to lend to a tiny firm like his.

“I knew it was no good,” he said. “But when you are really in need, you try to think it’s going to be all right in the end.”

Currently working as a day laborer, his income barely covers meals for his wife and himself.

“People say it is only natural to repay what you have borrowed,” said Yoshio Honda, secretary general of a national council for victims of credit card and consumer loans.

“Debtors also blame themselves, saying their plight is their own fault.

“But they are also victims of (flaws in) the nation’s social and economic structure.”

Lawyer Utsunomiya, who also heads a national group assisting heavily indebted people, maintains that banks are not fulfilling their social responsibility and are often reluctant to lend to small firms and individuals.

He also cited the nation’s welfare policy, which fails to provide a sufficient safety net for those in economic difficulties.

Experts also say the laws governing interest have a double standard, which was not fully remedied even after public criticism of the aggressive loan collection tactics of “shoko” high-interest moneylenders for small and midsize companies.

Consumer loan firms usually set interest on their loans just below the maximum level permitted under a law for control on financing, deposit and interest rates.

Following the shoko loan scandal, the law was amended in 2000 and the maximum chargeable interest was lowered from 40.004 percent to 29.2 percent.

Violation of the law is punishable by up to three years in prison or a 3 million yen fine.

Most people are unaware that the 1954 Interest Regulation Law, which governs financial business, limits the maximum interest rate on loans at between 15 percent to 20 percent depending on the loan amount.

Interest exceeding that amount is only legal when borrowers voluntarily agree to the rates.

Not surprisingly, critics say, consumer loan firms are not forthcoming with explanations on this point when urging customers to sign for loans.

During Diet debate, the opposition camp proposed eliminating this double standard and bringing the maximum level down to the rates allowed under the Interest Regulation Law.

Amid industry protests, however, the amendment passed by the ruling coalition only lowered the maximum levels under the financing law.

“(Lowering the legal ceiling on interest) would only help major lenders like us,” said Satoshi Matsumoto, a spokesman for leading consumer loan firm Takefuji Corp.

He said stricter regulations on interest would hurt smaller lenders and encourage illegal operators, as there will always be consumers desperate for loans regardless of the interest rates.

In fact, debtors rejected by major consumer loan firms often end up turning to loan sharks who charge outrageous interest and use strong-arm collection tactics, experts reckon.

Such illegal lenders attract customers through advertisements, which are common in cities and in some newspapers, or by sending mail directly to heavily indebted individuals whose names are provided by private data agencies.

Utsunomiya recently filed criminal complaints with police against a number of illegal operators, including some with legitimate licenses.

Authorities remain unenthusiastic about pursuing the cases, however, because the targeted firms often simply close down and reopen under a different name, he said.

To address the situation, a special appendix to a law enabling fast-track corporate rehabilitation took effect in April.

It provides a legal framework for heavily indebted individuals to restructure their debts without having to file for bankruptcy. In line with this move, Utsunomiya said more lawyers must become involved.

He also criticized the media for helping to create a softer image for the consumer loan industry by lifting their voluntary curbs on the running or airing of ads for these firms.

About two years ago, some Tokyo-based broadcasters began airing commercials for major consumer loan firms during the day.

Ads of this nature had previously been aired only late at night.

Tokyo Broadcasting Co., the only major holdout to the daytime ads, started airing them in April.

“We were waiting to see the situation after the revision of the financing law,” a TBS spokesman said.

“I don’t think their loan interest rates are low yet, but we judged that there are no major problems (concerning consumer loans) after the legal revision.”

Major Japanese dailies also carry advertisements from these companies.

Earlier this week, The Japan Times ran for the first time a full-page ad targeted at investors for Takefuji.

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